Some umbrella companies are non-compliant and operate disguised remuneration schemes. These schemes claim to prevent certain payments made to workers from being taxable. They aim to do this by describing taxable earnings paid to a worker for doing their job as something that is non-taxable instead.

If your agency engages an umbrella company for payroll, you need to be aware of the potential risks to your business. Using a non-compliant umbrella company can lead to significant reputational and financial damage.

The UK Government has released new guidance on how to check if an umbrella company is complying with the tax rules. These are the steps you can take to protect your business from non-compliant umbrella companies:

1. Perform due diligence on your whole supply chain.
2. Find out what you need to do when you engage a worker.
3. Consider adding clauses in your contracts with umbrella companies.
4. Check payslips to make sure PAYE is being operated on the full amount received by the worker.
5. Be extremely cautious about working with umbrella companies that are offshore or offer financial incentives.
6. Check the umbrella companies details and returns filed with Companies House to make sure details such as its financial position, location and trading history are consistent with what you have been told.
7. Educate your workers by sharing information with them about tax avoidance schemes.

Find out more on GOV.UK here

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